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December 25, 2015 14:09
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R code to calculate option value recursively backward in the binomial asset pricing model.
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| p <- 1/2; | |
| u <- 2; | |
| d <- 1/u; | |
| r <- 1/4; | |
| v <- function(n, s) { | |
| if (n == 3) { | |
| return(pmax(s-10, 0)); | |
| } | |
| (p*v(n+1, u*s)+(1-p)*v(n+1, d*s))/(1+r) | |
| } |
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